By John Resek

A recent case presents an interesting fact pattern which confirms there is a lower standard to invalidate a patent in the U.S. Patent Office (“PTO”) than in court.  This suggests that the PTO proceedings, inter partes review and post grant review, which start on September 16^th 2012 and March 16^th 2013 respectively, may be attractive procedures for parties seeking to attack a patent claim.    

The Federal Circuit issued a split decision in In re Baxter on May 17, 2012. [1]  Among other things, the court decided that the PTO might find a claim unpatentable, even after a challenger has failed to show the patent claim invalid in federal district court.    

The case involved U.S. Patent No. 5,247,434 (“the ’434 patent”), which related to hemodialysis machines, and was assigned to Baxter International Inc. (“Baxter”).  In 2003, one of Baxter’s competitors, Fresenius Medical Care Holdings, Inc. (“Fresenius”), filed an action in U.S. District Court seeking a judgment that the ’434 patent claims were invalid.  The court found against Fresenius deciding that the evidence of invalidity was not clear and convincing.  On appeal, the Federal Circuit affirmed that decision in Fresenius v. Baxter. [2]

In 2006, parallel with the litigation, the PTO reexamined the ’434 patent, at the request of Fresenius, relying on the same prior art references used in court, as well as additional references.  The Examiner concluded that, in view of the combination of cited references, the claims were unpatentable as obvious. Baxter appealed to the PTO’s Board of Patent Appeals and Interferences (“the Board”).  After oral argument, but before the Board decision, the Federal Circuit issued its decision in the Fresenius v. Baxter litigation. The PTO Director ordered the Board to consider the Federal Circuit’s decision in its patentability determination.  In spite of that decision, the Board found the claims unpatentable.[3]  Baxter then appealed the Board decision to the Federal Circuit. 

The Federal Circuit’s decision in In re Baxter, upheld the Board’s finding, that the ’434 patent claims were unpatentable.  Citing its earlier decisions in Ethicon, Inc. v. Quigg and In re Swanson, the majority stated that the PTO, in reexamination proceedings, and the court system, in patent infringement actions, “take different approaches in determining validity and on the same evidence could correctly come to different conclusions.”[4]  They also noted that a court’s decision that a challenger failed to meet the clear and convincing burden of evidence required to find a claim invalid in a judicial proceeding, does not mean the patent is “valid”.  It means only that the patent challenger did not carry his burden of proof.  In a USPTO reexamination, the standard of proof is a preponderance of the evidence, which is substantially lower than in a civil case and there is no presumption of validity. “This, case thus illustrates the distinction between a reexamination and a district court proceeding.” [5] 

In her dissent, Judge Newman argued that the claims had already been confirmed as valid in the Fresenius v. Baxter litigation.  According to Newman, the issue of the case was that “an administrative agency … [cannot]… override or disregard the final judgment of a court.” The PTO should be precluded from striking down the claims of the ’434 patent, because “[a]ll departments of government are bound by the finality of the judicial ruling.” [6] Moreover, “[a]ny distinction between judicial and agency procedures cannot authorize the agency to overrule a final judicial decision.” [7] 

Anticipating the dissent, the court majority said, that they were not elevating a decision by the USPTO over a decision by a court. Rather, Congress provided for a reexamination system that permits challenges to patents by third parties, even by those who have lost in prior judicial proceedings.  The majority also noted that the Federal Circuit could not conclude that the PTO was barred from conducting a reexamination in this case, without over-ruling their prior decisions, in Ethicon and Swanson, which they could not do. [8]  

[1] In re Baxter Int’l, Inc, __ F.3d,  2012 WL 1758093 (Fed. Cir. 2012)(Lourie, J.)

[2] Fresenius USA, Inc. v. Baxter Intern., Inc., 582 F.3d 1288 (2009).

[3] Board Decision, 2010 WL 1048980, at *12.

[4] See Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1429 (Fed. Cir. 1988); In re Swanson, 540 F.3d 1368, 1377 (Fed. Cir. 2008)).

[5] In re Baxter, 2012 WL 1758093, at *7.

[6] Id. at *4.

[7] Id. at *13.

[8] Id. at *7 (citing Hometown Fin., Inc. v. United States, 409 F.3d 1360, 1365 (Fed. Cir. 2005) (“[W]e are bound to follow our own precedent as set forth by prior panels . . . .”)).